It is a known fact that countries around the world continue to borrow money externally to take care of their responsibilities. It will be interesting to note that even US is presently indebted to China and Japan.

During the time of Idi Amin, this method of printing more money was explored and we were made to understand that it led to inflation blah. . . blah. . .  blah. . .  Experts said there is a limit to the amount of currency a nation can print (and also that can be in circulation) at a time. But we still see some African. . . especially military leaders exploring this avenue.

Why can't countries print whatever amount they want from their minting companies and  call the experts to manage the inflation problems that can come out of it instead of us to continue to be indebted to some foreign country, where only God knows whether they are using the same tactics at the detriments of others?

This is an avenue to educate one another. Please only intelligent answers are welcome!.

Economists where are you.

Here is a pretty good explanation:

http://economics.about.com/cs/money/a/print_money.htm

An excerpt:

In short prices will go up after a drastic increase in the money supply because:
1. If people have more money, they’ll divert some of that money to spending. Retailers will be forced to raise prices, or run out of product.
2. Retailers who run out of product will try to replenish it. Producers face the same dilemma of retailers that they will either have to raise prices, or face shortages because they do not have the capacity to create extra product and they cannot find labor at rates which are low enough to justify the extra production.

@DapoBear, thanks for your contribution.

please,

1.  Does this also affect third world countries?
2. Is this not affecting countries that are not even borrowing money?
3. Are these inflation indices really applicable to countries where majority are living on less than $1 a day?

But government has always told us that the reason they dont want to increase salary is so that there will not be inflation.

Why borrow when we can make do with what we have? When we can increase the tax rate?

Seun:

Why borrow when we can make do with what we have? When we can increase the tax rate?

wHEN THE BUISNESS WE HAVE ARE STILL STRUGLLING DUE INCREASING COST OF DOING BUSINESS AND YOU WANT TO INCREASE TAX RATE?, I WOULDNT EVEN EMPLOY U TO TEACH ECONOMICS IN A SCHOOL JUST KIDDING, BUT THAT IS NOT A REALLY GOOD IDEA

Nigeria spending raises concern
Reuters


November 30, 2010 11:23PM
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Nigeria expects its budget deficit to widen to 6.1 percent of GDP this year, more than double the level set under a fiscal responsibility act three years ago, as government spending rises ahead of elections next April.

Revenue shortfalls from the oil and gas sector, unexpected wage increases, and election costs will contribute to the widening deficit, Finance Minister, Olusegun Aganga, said in an annual briefing on sub-Saharan Africa’s second biggest economy.

Government revenue is projected at 3.18 trillion naira, with expenditure expected to be 5.16 trillion, Mr. Aganga said in the review, released on Monday.

Analysts have expressed concern about the state of public finances in Africa’s most populous nation, as presidential, parliamentary, and state governorship elections approach.

Recurring expenditure accounts for more than half of the country’s overall spending, meaning it is paying more to keep government running than it is investing in badly-needed infrastructure and other capital projects.

Government borrowing has risen sharply, increasing by more than 50 percent since the start of the year, compared to private sector credit growth of just three percent over the same period.

The government has said it will also issue bonds to pay workers at former state telecoms company, Nitel, and to fund part of the electoral commission’s budget, further increasing domestic debt.

Still, the head of the debt management office has pointed to a debt-to-GDP ratio of 16 percent that is expected to remain stable next year, depending on the rate of economic growth, suggesting Nigeria could easily raise more debt if needed.

But authorities have also spent billions of dollars of oil savings since the start of the year alone, and seen foreign exchange reserves fall 20 percent year-on-year by mid-November to $34 billion.

Ratings agency, Fitch, last month, cited those factors when it cut its sovereign credit outlook for Nigeria to negative from stable.

Oil savings dwindle

The Excess Crude Account (ECA), into which Nigeria saves revenues above a benchmark oil price, has dwindled from $20 billion at the start of late President Umaru Yar’Adua’s term in 2007, to around $4.4 billion when President Goodluck Jonathan took over in May, and less than $1 billion now.

The government says the ECA has served its purpose as an account to be used to protect Nigeria against a fall in commodities prices or a global downturn.

But analysts say the reduction is alarmingly sharp during a period of relatively high oil prices - Thursday’s price of $85 a barrel is a 40 percent premium on the $60 assumption in the 2010 budget - and a recovery in Nigerian oil production.

Mr. Aganga said last week Nigeria’s foreign reserves were well below where they ought to be, and that a plan was in place to restore them.

He has also said spending for next year will be capped at 4.56 trillion naira, as the government seeks to rein in expenditure over the next three years.

Parliament approved spending of more than 4.8 trillion naira for 2010, up more than 50 percent on the previous year.

Also world-wide; all the countries seem to be owing.
I think they should all cancel and start afresh.
The world will not come to an end.
This might sound naive but it will definitely work.

DapoBear:

Here is a pretty good explanation:

http://economics.about.com/cs/money/a/print_money.htm

An excerpt:
In short prices will go up after a drastic increase in the money supply because:
1. If people have more money, they’ll divert some of that money to spending. Retailers will be forced to raise prices, or run out of product.
2. Retailers who run out of product will try to replenish it. Producers face the same dilemma of retailers that they will either have to raise prices, or face shortages because they do not have the capacity to create extra product and they cannot find labor at rates which are low enough to justify the extra production.

If they are selling more doesn't that mean that they make more profit and thereof can afford to increase production of their goods.

youngmonie:

wHEN THE BUISNESS WE HAVE ARE STILL STRUGLLING DUE  INCREASING COST OF DOING BUSINESS AND YOU WANT TO INCREASE TAX RATE?, I WOULDNT EVEN EMPLOY U TO TEACH ECONOMICS IN A SCHOOL JUST KIDDING, BUT THAT IS NOT A REALLY GOOD IDEA

Actually, I'm not in support of heavy taxation, but it makes more sense than borrowing.  

Whatever you borrow has to be paid back later from the same tax, but with interest, so why not just go ahead and use the tax to do what you feel needs to be done?  If people refuse to pay the increased tax then maybe those things are simply not worth doing.

Seun:

Why borrow when we can make do with what we have? When we can increase the tax rate?

Increasing tax rate will come with mass discontent, and can make government unpopular.
Borrowing is easily more preferred. Secondly, using the tax option may not be as effective, especially in third world.

Yes pretty good question,


why borrow money when we have money?

why cant they just print this money and use it for us to have good roads,electricity and other basic amenities.

hmmmmmmmmmmmmm!

as a follow up to Dapo's comment, print more money, and you -

1) introduce hyper - inflation
2) destroy the value of the Naira
3) cripple manufacturing
4) prepare for mass unemployment
5) destroy your standing in international financial markets
6) pole-axe already low standard of living
7) be ready for mass riots & wholesale breakdown of law & order.

You see why governments avoid it?

First World War Germany, and more recently, Mugabe's Zimbabwe are just two nasty reminders.

Seun - increasing taxes does not necessarily mean more money for the government. What Nigeria needs is to tax more efficiently.

All I know is the more you print Naira the more the currency is devalued with respect to other world currency. And its quite obvious that if printing more Naira was the solution to Nigerian economy trust the rogues that we call our leaders would have opened up several branches of CBN to print out currency even in their rooms. . . .

Hence the Idea of borrowing I guess is one of the most viable way to keep the economy running based on the principles of economics I learnt in high school.

But Honestly just google the rest you will see answers backed up with pure economic priniciples. . . . QED

very hilarious, the poster must be a joker, lol. If countries across the world continue to mint money endlessly, it will result in a competition on who can mint more. The wealth of a country depends on its productivity and the services it can render to meet internal and external needs. If Nigeria needs the services of a german company, it wouldnt pay the firm with the Nigerian Naira, but with the Euro or any Internationally acceptable currency.

By the way of example/question : how will u buy import anything (goods and services) with your locally printed currency?

Quote from: newgroom Posted on: Today at 04:41:22 PM

This is an avenue to educate one another. Please only intelligent answers are welcome!.

Intelligent answers, ke? To an infantile question!!
What an oxymoron!!!

So what is quantitative easing then'?

You I once worked for a canadian bank. So i know alittle about the banking here.
zimbawbwe inflation had nothing to do with printing money. There was no trade. They were block from doing business with most nation. even some african countries are not doing business with them. There was an Africa union block, if I remember against them,

You cant go and print money just because you want to pay salary, NO. That was what the 1971 or 73 award was about.
You have to create an avenue where nigeria govt has money or some form of revenue.


zimbawbwe inflation was base on economy block by the international community and bad government.

Bumping out money should be a non disclosure. It should be secret so that it does not affect the economy while it is done. The central bank dont have to tell anyone when they bump money into the system. This way it does not bring inflation with it. When africa countries want to bump money into the system, they make a big show about , so that people think they are doing something. Which is what you see. That people having knowledge of that information that that money would be bump into the economy is what cause inflation. It is the informationwe have on stock that affect stock. If you dont have any information, the stock would remain stable. same thing goes for inflation.

Nigeria govt make a show of it, and that information causes inflation. It should be top secret, over here they sometime even denied when it has been done. you can see them going on television.


When you start telling people. the information is what cause inflation. It is like stock, good and bad news affect the stock exchange.


If nigeria is broke, you cut down on spending. remove the local govt from allocation. cut down on trip abroad, cut done on sport and other not to financial rewarding issue.

But the issue still remain, that banks can not run on depositors fund, which is What Iweala and others were doing.

Why do you think they call it FEDERAL RESERVE in the USA.?? what does the word RESERVE mean.

the issue is, sanusi idea of taken money bank from people was a wrong concept. this is was crash the nigeria economy.


If you look at the USA or Canada, Let me use canada for example. from what I know, I am not accurate about, it, it is 10 times the depositor fund in circulation. imagine if all the depositors show up at the doors of the banks and tell them, they want all thier money. While you have borrow out thier money. You see money is paper. Where do you think the mortgage money we borrow from banks comes from. Do you think it is from Heaven.?? Or do you think it is from the moon or do you think it is mostly from depositor fund. No.

Find our how much is in circulation in the USA and how much the depositors fund are.


If i was president of Nigeria, what I would make banks to do is find out how much deposit in all the banks.

And if the total depositors fund is 1 trillion. The total amount available money for borrow should be 10 trillion.

But in Nigeria, banks are only running base on depositors fund, that is wrong. What the banks should have is 10 times what the depositor fund is. In canada it is 10 times. according to my friend.


The reason those bank had problem, is because depositors came to collect thier money , while they had already borrowed out the money.


What I would do if I was president is . to increase the fund available to the banks. beyoud what the depositor fund is. The reason let say you have 1 trillion in the banks, the owners can wake up one day and collect thier money. And you would have zero money in the bank. But you have to check your GOLD too. for security.

The central bank should have 10 trillion if the we have 1 trillion of depositor fund. While 6 trillion of that money for Business(including mortgage, business and companies loan etc ) and another 3 trillion held at the centre bank. I know canadian mortgage system fund is not coming from depositor fund only. But more of govt fund.

While the 6 trillion business fund given to bank is borrow by the banks from the central bank. It also give the federal revenue. Which mean the central bank is making profit from money the banks are borrowing. If the central bank borrow out to the banks at the rate of 2.0 % . it makes money too.

This help the government to have revenue to pay salary and others. since the central bank would be making money from interest.
This also remove the so call dependant of the federal govt on oil as its sole means of funding.



Bumping out the money should be in stages, if not , you would create inflation.You dont inject the money because you want to have an election. and run away and steal the money. which is what PDP want to do. You wait after the election. What they want to do is bump money and steal it and run away, which is wrong. that is why they ae acting the whole show, some of them are criminal.

What you have now is the banks are mostly or solely on depositors fund. And even that money Sanusi is collecting back the money.

Mortgage are expensive. And if you are going to borrow someone mortgage over 30 years. It cant comes from depositors money, because depositor can come back and claim thier money. Which has been the reason why you have stress in the bank. Are you going to tell depositor, you are going to wait 30 years to get your money, that the bank has borrow out the money for 30 years. No, you dont do that. Iweala and others did not do a good job while they were there.

If i was president, this is one thing I would do, the issue is all the people in power in nigeria are not expose people.

This is why I think I should be president, because, your people in power have no idea, they are just there as showglass. As president, I would have power to reform the system . It is obvious your leaders lack knowledge it is too obvious.

Your problem is there is noway zimbabwe can ever have a good economy with bad leaders. Any nation with bad leader do not have good economy.

Printing money without d resultant increase in peoples wage would work. That is if 20 billion naira is printed by d Cbn, and this money is credited to commercial Banks as a cash injection so dat d Commercial Banks can borrow industrialist d amount they need to expand their businesses would work.

That is what is done in d West, they print and inject into Commercial Banks who in turn lend to new busineses in other to boost economic activities. But print and start increasing everyones' salary would lead to inflation becos too much money would be chasing too few goods.

ode remo:

So what is quantitative easing then'?

QE is a monetary policy that is used to stimulate growth and is used best when you have two conditions
1. Interest rates are so low (0%) that you can no longer lower it to increase supply of funds
2. Inflation is near 0%.
3. Deflationary pressures are so great that a Central Bank uses QE to fight deflation.

The process usually involves the central bank printing money to buy government or corporate bonds. The purchase of corporate bond increases the domestic supply of currency while the purchase of government bonds that is heavy on the international financial market can also be a tool to lower the value of a currency leading to increased exports.

Nonsense Economics  - but it is ok for example the UK Central bank to print money and pass it thru Banks who then pass it on to the consumer - what is  the difference the UK Central bank might as well pass directly to the consumer - Again i say nonsense economics - abeg print more money.

The obvious reason why government wouldn't massively print money is not only because of inflation, but currency value. In economics, when there is excess flow of currency, then you would have more money and less products,  currency would be devalued such t hat it affect all parts of macro economics; from interest rate, to labor and unemployment and even trade.  In fact printing money does not solve the problem, it makes it even worse because it’s more expensive that you would imagine. Also when it comes into international trade, because of how expansive naira is, something u initially bought for $1dollar is now $3, although u bought it for $3, its value remains at $1, so the extra $2 is more or less waste. Don't get it wrong; printing money is good only on a small amount is ok, i.e. to ease the economy, when the economy bouces back, the money is withdrawn back from the economy.

manny4life:

The obvious reason why government wouldn't massively print money is not only because of inflation, but currency value. In economics, when there is excess flow of currency, then you would have more money and less products,  currency would be devalued such t hat it affect all parts of macro economics; from interest rate, to labor and unemployment and even trade.  In fact printing money does not solve the problem, it makes it even worse because it’s more expensive that you would imagine. Also when it comes into international trade, because of how expansive naira is, something u initially bought for $1dollar is now $3, although u bought it for $3, its value remains at $1, so the extra $2 is more or less waste. Don't get it wrong; printing money is good only on a small amount is ok, i.e. to ease the economy, when the economy bouces back, the money is withdrawn back from the economy.

I still dont get it. what stops one from printing large amonts of naira and then exchanging it for the more the stable currency eg, the dollar?

blacksta:

Nonsense Economics  - but it is ok for example the UK Central bank to print money and pass it thru Banks who then pass it on to the consumer - what is  the difference the UK Central bank might as well pass directly to the consumer - Again i say nonsense economics - abeg print more money.  

The answer to your question lies in the term used in economics " the multiplier effect". When a bank has $100 borrowed from the federal reserve, for instance they keep 80% reserve, they would loan out that $20, and that $20 can be deposited at another bank, when that bank keep a 80% reserve, $4is lent out again, the cycle continues.

Katsumoto:

QE is a monetary policy that is used to stimulate growth and is used best when you have two conditions
1. Interest rates are so low (0%) that you can no longer lower it to increase supply of funds
2. Inflation is near 0%.
3. Deflationary pressures are so great that a Central Bank uses QE to fight deflation.

The process usually involves the central bank printing money to buy government or corporate bonds. The purchase of corporate bond increases the domestic supply of currency while the purchase of government bonds that is heavy on the international financial market can also be a tool to lower the value of a currency leading to increased exports.

Thanks for the definition. The Wikipedia article is also good.

KnowAll:

Printing money without d resultant increase in peoples wage would work. That is if 20 billion naira is printed by d Cbn, and this money is credited to commercial Banks as a cash injection so dat d Commercial Banks can borrow industrialist d amount they need to expand their businesses would work.

That is what is done in d West, they print and inject into Commercial Banks who in turn lend to new busineses in other to boost economic activities. But print and start increasing everyones' salary would lead to inflation becos too much money would be chasing too few goods.

That Sanusi printed money to rescue banks in Nigeria does not mean it is done in the West. For the bank bailouts in the west, the federal reserve, the Bank of england raised funding through capital markets. If you want to increase the supply of funds to banks, the central bank lowers the reserve requirement rate. In the West, when you print money, you use it to buy bonds, mortgage-backed securities, and corporate bonds.

@ poster.
Have you really considered the cost of print some currencies. I read an article something this year, during sanusi and banking saga, they said that the cost of printing, for example one 20naira polynote, was higher than the 20naira itself. If such claims are true i dont think it make sense spending more to print more note to pay your debt, where you can equally use the cost for printing to pay the debt.

Also like people said, you should consider the inflation rate this might caused in such an economy. Government printing money at it's will always increase the circulation of such currency at the international monetary market, when the supply of such currency is higher than its demand at the international market. The value of such currency began to depreciate rapidly and you can know the devastating situation this will put a developing nation like Nigeria, who depends solely on importation.

T9ksy:

Quote from: newgroom Posted on: Today at 04:41:22 PM
Intelligent answers, ke? To an infantile question!!
What an oxymoron!!!

@T9ksy
To you it is immature. To someone that is not an economist, it is not. The same way an expert in other field will think, should you ask questions.

But then, what is a forum for? to learn. And am learning.

I would have preferred you contribute, so as to enlighten we immatures.

Mai Suya:

I still dont get it. what stops one from printing large amonts of naira and then exchanging it for the more the stable currency eg, the dollar?

If you print more money, your currency loses its value. If your currency loses too much money, investors may decide not to hold your currency. For instance, investors have been buying gold since the start of the financial crises. Gold is seen as a safe legal tender. The price of gold was approximately $275 before the recession. The price of gold increased to $1200 after the recession started and moved to $1300 when the American federal reserve bank announced that it would release $600 Billion into supply.

So you do not want to print too much money otherwise, it no longer becomes legal tender. Would you buy zimbabwean dollars knowing that it would be further devalued next week?

Mai Suya:

I still dont get it. what stops one from printing large amonts of naira and then exchanging it for the more the stable currency eg, the dollar?

ok let's look at this scenerio

We have 1 million naira in circulation, and then you go out and print large amount of money say 50% more of what is in circulation, which would make the total money in circulation 1.5million naira. However, note the now there is 1.5 million in circulation, more people have more buying or spending power, that would drive demand immediately to an all time high, and when demand is high,  supply is low. Now for every 1 naira you would spend, you would spend another half naira, you can exchange it for the stronger one but it’s more or less valueless because the CBN inter bank exchange rate for the dollar would be 1.5x  so that discourages international trade. Though u buy $, the dollar doesn't change its value for the naira regardless of how much its bought, so bottom line like i said previously, it lies in the value of the currency.

It would cause inflation

@Newgroom,

Why oh Why? Good Kweshon

Why does Nigeria have to sell Oil in Dollars? When we can print as much as we need and exchange for the Dollar

Who does Nigeria have to base our economy on Oil Sale? When we can easily Print more Naira, minimum wage can be set at 1m naira a week.

Why does a Nation need to Tax at all; Why Tax the money you printed, when you can print more?

I have a headache from too much kweshon